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Politics and manipulation

If one has a pet journalist who does whatever is suggested to him/her/it without any question, one is actually creating a problem. The journalist has zero credibility, of course, but in consequence the puppet-master has little credibility either – because the need to manipulate the news highlights what you are up to, or the problems that worry you. Thus when a pet scribbler reports that the European Commission has brushed off the suggestion that there will be an investigation into anti-competitive activities involving the FIA, the Formula One group and some of the F1 teams, everyone assumes that the word to do that came from the puppeteer, which means that this is something that worries the string-puller.

The good news in this case is that the once-credible magazine that ran this tosh is not overly-extending its fact-checkers – because there are no facts involved.

In the writer’s opinion (worthless or otherwise) a letter sent by the European Commission was a brush-off. Apparently, this passes for journalism these days.

What the letter shows is carefully worded bureaucratic language which says “we are investigating”. Bureaucrats are always careful with words, lest they get bitten by them later. And the last thing they want to be seen as is gung-ho, as an enthusiasm to investigate can be portrayed as bias at a later point.

Anyway, what we have here is a worthless opinion which has been picked up by the usual bottom-feeders and the impression is created that the Commission is not interested in F1.

Big mistake.

It’s far wiser to read real journalism in The Times, which reports that there are fears that an Competition Directorate investigation of F1 could do the sport serious damage, quoting Max Mosley, the former FIA President, who has already warned that the Competition Directorate could rip up all the F1 financial agreements because of the way the money is shared out and the sport is governed. Mosley has some experience with the FIA, the EU and Formula 1, and while there may be some agenda behind what he says, the fears are real.

I think it is important to remember one or two important facts from back in the mists of time. In the 1990s there were some complaints against the FIA and the Formula One group (and related parties) over the handling of various commercial rights. This came from a number of different parties, who got together (secretly) and agreed to try to get things stopped. They knew that they had a strong case and the worst case scenario was a pay-off from the commercial rights holder to make the problems go away. A settlement duly came and the conspirators received what the FIA later called “a very substantial payment” from the commercial rights holder. As a result of this they withdrew their complaints.

However, the European Commission did not stop there. It plodded on through its due processes, unrelated to the previous complaints, and ended up forcing change. The Competition Commissioner at the time of the settlement, Mario Monti (later Prime Minister of Italy), agreed to a settlement on the basis that “the parties agreed to make changes which limit the FIA to a regulatory role, so as to prevent any conflict of interests and to remove certain commercial restrictions put on circuit owners and TV broadcasters”. The Commission said that “the sector will be kept under scrutiny to ensure that changes work in practice”.

My sources tell me that the F1 teams have already met with the European Commission and discussions have taken place, but there is really no need for an official complaint, unless the teams are aiming for an a la mode pay-off from the Formula One group. I wouldn’t be surprised if every chancer with half a complaint did not jump on the band wagon to try to suck some cash out of the rich.

But will that stop the Commission if it chooses to revisit Grand Prix racing? No. The problem is that another investigation could, as Mosley says, do considerable damage to all concerned, but at the same time it might also be a good idea for everyone, if it creates a better structure for the future.

In general terms the Commission does not want to get involved in sport and prefers to leave the sporting federations to run their own operations. However, if those operations are deemed to be unfair then the Commission will step in, as was proved 15 years ago. Deals can be made and there is a very neat system whereby the first whistleblower in a cartel arrangement gets immunity if its shops the others involved? One can see Bernie Ecclestone scurrying after that if there are signs that the EU thinks a cartel is being operated. One cannot imagine that the FIA would be able to move fast enough…

In any case, none of this helps anybody involved. The Formula One group is owned by a bunch of private equity investors. They want to make money and sell the sport to the highest bidder. The problem is that no-one will buy if the sport is up to its neck in legal waffle and investigations. Thus they are stuck. Trying to float the business will not work because potential investors won’t want to know if there are risks of the whole thing being unravelled. One might argue that the Formula One group could go down this path in order to damage the FIA and ultimately go off on its own, regulating itself, but that will not happen. Why? Because the value of the FIA as a regulator and safety monitor is actually quite important to the Formula One group because it is the FIA that has to deal with all the boring stuff, like liability issues, rather than those tasks and risks having to be taken by the Formula One group itself. Claims brought against the federation in the case of serious accidents (such as a Le Mans-style disaster) could prove destructive. One can insure oneself against liability issues but the premiums are high, particularly if the insurers agree to pay negligence claims. Bernie and his backers don’t want to run those kind of risks, nor pay those kinds of premiums. The FIA has to. It is their responsibility. The federation insists that all competitors are themselves insured, but that does not preclude negligence claims.

These are matters that are understood by the automobile clubs, a lot of which earn huge sums from insurance. What they want for their core businesses is for the federation to be seen as being clean, transparent and effective. That creates confidence.

Oddly, when you take a step back, both the FIA and FOM want the same things, it is just that their executives have created structures that have attracted the attention of the Commission.

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Joe, I look to your comments and insight as sensible and insightful. I’d ask you to think about the issue of liability and risk. To me it would seem F1 is already paying for liability coverage through payments made to the FIA. It’s a bit analogous to getting the “free” toaster when one opens a bank account – the bank isn’t covering that cost, the customers do. That doesn’t suggest F1 should remove itself from the FIA umbrella, but the cost of liability coverage and who ultimately bears that cost doesn’t seem to be a factor worth weighing.

I also think the liability argument is a bit overblown, except for the innards of reinsurance contracts that rather like reference to intra-governmental recognition of institutions for the wonderful waiver of every kind of responsibility that really is.

The true risk, seen the other way, is that if the FIA is ever seen to be taking a commercial interest in the sport, any motor sport, they will themselves become no longer protected by the conventions of insurance policies.

The more the FIA interferes, not only the dirtier their hands, from the perspective of any thinking sports fan, and observer, but the less genuine legal freedom they may, consequently, exercise.

I believe that this is why the FIA moved their operations to Switzerland, as a end run against a very real, fully anticipated, challenge to their governance.

The FIA’s move to Switzerland does not protect them from EU investigation. They’re effectively a member of the EEA and the EU does not restrict it’s assessment of unfair practice to the EEA anyway.

Two more likely reasons to move:
1. International organisations tend to establish themselves in neutral countries or, if as big as the UN, create extraterritorial status.
2. Dodgy dealers from some countries prefer to work from Switzerland rather than France.

In a oversize briefcase, inside a numbered security box, the walk in kind, where lawyers pile great oversize attaché cases of agreements never to be seen again, behind the best security a bank trying to avoid the reality of the deal with America can muster for privacy, camouflaged by contracts and disguised by terrible writing, he lay there, praying his ransom was to be paid on time, the seconds whilst a editor typed “xxxx can reveal”, becoming the slowest of his life… he grasped a rasping last breath, and invoked the secret code; “I read it at Companies House!” he pleaded, from within, to the voce activated control lock, that was the gateway to his freedom, and a GA pass to Silverstone, too long ago he’d been told, that it was not good cover in the media room, too exposed… and as his chest rose and fell, as if the discarded rulebooks of all of La Place de la Concorde fell upon his ribs in one Moseleyan heft, a man, walking by the corridor outside, heard a familiar, desperate, breathless, pliant, “B e r n i e … ???”

The overall theme here seems to be that various players in F1 have so little confidence in their ability to successfully negotiate with other players in F1, that they each seem happy to let the entire edifice collapse, on the assumption that what rises from the ashes will suit them better. It seems a strange position for the sport to have reached.

The story reminds me of that wonderful scottish isle a wee while back, what was its name? Lovely climate, for a while it became a haven for whiskey distillers with exquisite know how, producing fine malt whiskiy for local consumption only.

For the islanders life was good. Finest rye whiskey for free. Free local food and beer. No taxes. No local government. But … the owner was an old despotic Laird with a taste for concubines and dodgy deals.

Was everything rosy for the smallest distillers? Alas, No. The Laird had given preferential contracts to the big boys. They pocketed sums and entitlements denied to the smaller cookies. Financials were a bit unregulated. Odds were stacked against the little.There was unfairness at the heart of this baby.

Outsiders fanned the grumbling and the campaign against the Laird and the big’uns. A british mp wrote to the EU.

Sounds like CVC’s modus operandi: Find a lucrative business opportunity, milk it until there’s nothing left or regulators catch up to the scam, then run for the hills behind a phalanx of lawyers covering your tracks.

Lots of fine engineering goes into making single malts as well as the blended varieties. If there were rules for distilling, certainly there would be huge scope for the sniffing out of loop holes and all manner of ingenious rule bending. So not a bad analogy. Your health, sir!

During your closed period, I read something (not from a bottom feeder) to the effect that Lotus had been downgraded to a possible entrant for 2015 by the FIA – presumably they have not paid their entry fees.

It’s kind of ironic; the entry list must formally put a question mark over the name of the Lotus entry, because they’ve been made aware of a wish to change the name, but to a casual (?) observer, it’s a bit of “Lotus, Who?”! :~)

Yes, but it occurs to me that it also means that your words have impact somewhere. And, insurance is my day job. The liabilities of the federation are a different risk entirely from that of the teams, circuit owners, and race promoters. Each should be insured but the underwriting is not the same. However, there is more than enough excess capacity in the London market to provide enough cover in the event of spectator or participant injury.

I suspect the FIA set the minimum F1 driving age at 18 after taking legal advice. As Joe says, the FIA is responsible for insurance, not FOM, or the teams, and I’m sure that some of the stakeholders were (and perhaps still are) anxious about having a 17-year-old driving in the senior series. The fallout following a bad crash is bad enough when the driver is in his 20s (go Jules!); it is hard to imagine the hysteria that would surround an equivalent crash involving a minor. Heads would roll.

I believe too that the reputational risk consideration is higher in minds at the FIA than insurance risk.

Whilst it is true that individual event organisers carry immediate risk for bad practice at races (and insure themselves correspondingly), the FIA can’t escape legal pursuit. If you run the organisation responsible for licensing drivers and circuits, even when you pass responsibility to others, you’ll find that somebody wants the buck to stop with you.

Perhaps the effort to establish races outside of Europe in recent years at the expense of European races demonstrates the “deal master” is uncomfortable with the lack of leverage he would have with the E.U commision. A few more races outside Europe and the old we will exit Europe if we don’t get our way card can get played.

On the shitty story writers, why do semi-legit publications publish this drivel? Because gossip sells rather than dry fact?

I do not see why everyone is panicking. We all know that engineers get more downforce/power as the rules mature. I guarantee you the engine noise will be better next year. Every time the regulations slow everyone down the engineers claw it all back. It is the nature of formula one. The points system should also lower the price dramatically.

The fact is there is plenty of money in the sport to cover obligations. Right now it seems we have a war of chicken that is no good for everyone.

Very good summary. I saw the Forbes piece being circulated on several sites, and it struck me as wishful thinking at the very least. Having been involved in EU investigations myself, I can only agree with your conclusions. The British are so stuck in their disdain for everything EU that they do not even begin to understand the implications.
This process will overwhelm Bernie & co. Good riddance, too.

You’re right, cartel is the obvious term which is banded about but you’ll see that most punishments in recent years are related to anti-competitive activities/practices.

In terms of F1 I would assume investigations would focus on anti competitive regulations which create barriers for the less established teams. But in my opinion the overarching matter is a breach of anti trust law in relation to the concorde agreement. The process of picking off individual teams with secret agreements is collusion which is defined under anti-trust law is illegal.

seems the actual issue for regulators may actually be the tax income they no longer recieve. That combined with Switzerlands eternal history of shaded “Bank Accounts” make it near impossible to track the income now.